AfD’s Historic Win Shocks German Political Establishment: Here’s What Happens Next

The pro-Germany, anti-globalist, anti-mass migration right-wing populist party known as Alternative für Deutschland delivered its strongest election result ever in Saxony-Anhalt on Sunday, dealing a sharp blow to Germany’s political establishment.

On Sunday, AfD secured 43.8% of the vote in Sunday’s regional election, exceeding polling estimates. Chancellor Friedrich Merz’s Christian Democrats lost about 19 percentage points, while turnout surged to 77.8% from 60.3% in 2021.

According to Marion Mühlberger, a senior economist at Deutsche Bank, AfD’s weekend win leaves the party holding 39 seats in the 83-member legislature, three short of an absolute majority. The CDU, Social Democrats, Greens and Left also have a combined 39 seats.

Mühlberger said there are two possible outcomes of what comes next: an AfD minority government tolerated by BSW, or a political stalemate that leads to a snap election, which would only give AfD a new opportunity to secure outright control.

 Mühlbergere explained:

At the time of writing, the two most likely options are i) an AfD minority government (supported by the BSW) or ii) a stalemate resulting in snap elections, with the AfD hoping to reach an absolute majority rather than attempting a minority government. AfD leadership for now appears undecided on their preference: while national co-leader Chrupalla last night indicated a willingness to try a minority government, AfD’s lead candidate in Saxony-Anhalt, Ulrich Siegmund, already suggested a snap election as his preferred option, saying that “the AfD is not prepared to make far- reaching compromise to form a coalition.”

We believe that even an AfD (minority) government supported by the BSW would have materially detrimental ramifications for the economic prospects of Saxony-Anhalt over the coming years. Direct investment in the state would likely decline amid significant policy uncertainty, and skilled worker shortages would likely become even more pronounced. However, Saxony-Anhalt contributes less than 2% of German GDP, and any structural damage done to the regional economy is unlikely to spill over to the rest of the German economy. While an AfD state government might test some of Germany’s federal institutions, it will have no leverage over national economic or fiscal policy, not even via the constitutional court.

Over the course of today, we will see leaders of the coalition parties in Berlin officially react to their parties’ weak electoral performance. Chancellor Merz is expected to give a press statement today at 13.30 CET. There will likely be considerable political noise over the couple of weeks ahead of the state elections on 20 September in Berlin and Mecklenburg-Vorpommern. There may be some criticism of party leadership and reform proposals. However, once these final state elections of the year are over, we believe that an AfD government in Saxony-Anhalt is likely to provide an additional impetus for the federal government coalition to double down on reforms

Mühlbergere said the five seats held by the populist BSW will be decisive: 

Thus, the populist BSW, with its 5 seats, has a key role to play in the upcoming coalition negotiations as potential kingmakers. While the AfD missed their 45+% / absolute majority election target, they missed it so narrowly that it seems difficult for them to not aim for governing Saxony-Anhalt

The BSW is the potential kingmaker

As no single party reached an absolute majority needed to govern alone, coalition negotiations for entering a formal coalition or receiving ad hoc support for a minority government will kick off today. 

The BSW has theoretically three options once the new parliament has convened and the next state premier is to be elected. First, they could elect the AfD lead candidate as state premier (without entering a formal coalition), second they could elect the CDU lead candidate or third they could abstain in the first two ballots for state premier. 

Judging from statements of BSW co-leaders (at the federal level) Wagenknecht and Ali yesterday night,1 we deem the first option the most likely.

What comes next? There are two options:

Option 1 – BSW abstains in third round facilitating an AfD minority government 

This morning, BSW leader Wagenknecht called for a “political reset” in Saxony- Anhalt, especially when it comes to energy policy, sanctions against Russia (which however are set at the EU level), education, and public broadcasting. Thus, there is a certain overlap of political priorities with the AfD. However, the BSW does not want to enter a formal coalition with the AfD. 

With the AfD rejecting the BSW’s proposal for an independent state premier, an AfD minority government tolerated by the BSW seems to be a possible outcome. This means that the BSW would not enter a formal coalition with the AfD, but elect the AfD lead candidate as state premier in an informal cooperation.

Option 2 – The route to snap elections 

The newly elected parliament must convene for the first time by 6 October at the latest. But the regional constitution does not set a deadline for electing a state premier. Until a new government is elected, Sven Schulze will remain in office leading the caretaker government. 

As government formation could turn out to be complex, snap elections may be a possible way out. The AfD’s lead candidate Siegmund already suggested this as a potential option, saying that the AfD is not prepared to make far-reaching compromise to form a coalition.

There are three routes to snap elections:

1. If the newly elected parliament does not elect a state premier with an absolute majority after two ballots, it can decide with an absolute majority to dissolve itself before a third ballot. 
2. Six months after the election, the new parliament can decide with a two- thirds majority to dissolve itself. 
3. A newly elected state premier could call a vote of confidence. This could be a viable option for an AfD minority government, confident of winning an absolute majority in snap elections.

It is highly uncertain that snap elections would generate clear majorities. What could help the AfD is the narrative that the other parties want to keep them out of power, and that they now need a clear mandate. Moreover, smaller parties would again be at risk of not making the 5% hurdle, which would help the AfD. On the other hand, the strong AfD performance could again mobilise the centrist forces to avoid the AfD winning an absolute majority.

Mühlberger’s assessment was that an AfD majority in Saxony-Anhalt could weaken investment and aggravate skilled-worker shortages. She cited policy uncertainty, the party’s anti-mass migration agenda, and potential conflict with the civil service.

For Merz, the most consequential challenge is containing AfD’s momentum in the upcoming elections in Berlin and Mecklenburg-Vorpommern on Sept. 20.

Polymarket’s “Mecklenburg-Vorpommern Parliamentary Election Winner” market puts AfD’s odds of winning at 82%.

AfD’s odds of winning the Berlin election are much lower, at around 18%.

While Deutsche Bank was considerably less favorable toward AfD, Nomura analyst Andrzej Szczepaniak’s recent report said that markets are less concerned about right-wing populism and more concerned about “populist left-wing parties being elected due to their desire to increase spending.”